Due to the relatively heavy long position of managed money in soybeans, soybean meal, soybean oil, corn and Kansas City wheat, rallies will not get far because those with losses will be looking to sell positions as the market rallies. This will cap advances.
August soybeans lost 26.50 cents and the November contract -8.00 on total volume of 158,006 contracts. Total open interest increased by 6,416 contracts, which relative to volume is approximately 55% above average. The July contract lost 1,104 of open interest and the August 2014 through January 2016 contracts all gained open interest. The final COT stats, which we published yesterday, shocked us because of the significant long position being held by managed money, not only in soybeans but most grains. The report included trading on June 30 and July 1, and during this time the August contract lost 50.25 cents while the November contract lost 80.50.
Remarkably, managed money remains long by ratio of 1.76:1, which was down only slightly from the previous week of 1.90:1. Also, managed money actually increased its long position by 600 contracts in the latest report, which is almost inconceivable. Although we think there will be a countertrend rally, probably based on a weather scare in late July or during the critical month of August, there are significant numbers of managed money longs that need to be blown out before the market is on more healthy footing. From July 2 through July 7 (3 trading days), total open interest increased each day and totaled 10,145 contracts. In short, this means that managed money is digging in and refusing to liquidate, therefore soybeans have a way to go before it hits a bottom or temporary bottom. As this report is being compiled on July 8, August soybeans are trading 26.50 lower and November -8.50. Stand aside.
September corn lost 9.00 cents on volume of 278,535 contracts. Volume was the heaviest since July 1 when corn lost 2.75 cents on volume of 283,657 contracts and total open interest declined by 7,035 contracts. On July 7, total open interest increased by 8,757 contracts, which relative to volume is approximately 25% above average. The July contract lost 1,281 of open interest, September -362 and the December 2014 through March 2016 contracts all gained open interest. Like soybeans, we were more than surprised to see that managed money was long corn by ratio of 1.66:1, which was down fractionally from the previous week of 1.68:1. 2 weeks ago the ratio stood at 1.93:1. Like soybeans, managed money longs need to get blown out before the market can find a bottom or temporary bottom.As this report is being compiled, September corn is trading 1.75 cents lower, and has taken out yesterday’s contract low of $3.97. Stand aside.
September Chicago wheat lost 22.75 cents on volume of 81,309 contracts. Volume was the heaviest since July 1 when September Chicago wheat lost 5.00 cents on volume of 85,529 contracts and total open interest increased by 2,772 contracts. On July 7, total open interest declined only 93 contracts,which is positive considering the magnitude of the decline on July 7. The July contract lost 123 of open interest, September -800 December -83. The March 2015 through March 2016 contracts all gained open interest.
In short, it appears that liquidation in September and December has run its course, at least temporarily. Chicago wheat made a new contract low at $5.56 and as this report is being compiled on July 8 has made another contract low, at 5.55 1/2. Keep in mind, managed money is short Chicago wheat by ratio of 1.55:1, which is only slightly below the previous week of 1.57:1.In other words, though wheat has fallen 18.25 cents during the 2 COT periods (June 18-July 1), managed money has not increased its short position. On the other hand, September Kansas City wheat has fallen 24.00 cents or -3.37% during the 2 COT periods, yet managed money remains long Kansas City wheat by ratio of 2.29:1. Stand aside.
August live cattle lost 5 points on volume of 66,533 contracts. Total open interest declined by a massive 5,283 contracts, which relative to volume is approximately 230% above average meaning that liquidation was extremely heavy, even though August cattle prices closed essentially unchanged. The August contract lost 5,363 of open interest, December 2014 -426, April 2015 -378. August cattle made a new contract high at 1.56475, yet open interest declined as prices continued to move to new all-time highs. Although, in a normal market we would find this troubling, it actually may be a sign that prices have not reached a top. In other words, market participants are skittish about advances: longs are taking profits while shorts close out positions and the market climbs a wall of worry. As this report is being compiled on July 8, August cattle is trading 1.425 lower on the day. Stand aside.
WTI crude oil:
August WTI crude oil lost 24 cents on volume of 411,475 contracts. Total open interest increased only 1,605 contracts, which relative to volume is approximately 80% below average. However, the August contract lost 15,475 of open interest, which makes the total open interest increase more impressive (bearish). Additionally, the September 2014 through November 2014 contracts collectively gained 14,419 of open interest. In short, the smart money was getting short while the less intelligent were initiating long positions.
On July 3, August WTI crude oil generated a short-term sell signal and heating oil generated a short and intermediate term sell signal on July 3 as well.We have advised waiting for a countertrend rally in August crude before initiating bearish positions, and the market has not cooperated with us. As this report is being compiled on July 8, August WTI crude oil is trading 34 cents lower and has made a new low for the move at 103.01, which takes out yesterday’s low of 103.19.Additionally, Brent crude is trading $1.09 lower. With gasoline now on a short-term sell signal, we expect to see WTI prices decline significantly from here, especially since managed money remains long WTI crude oil by ratio of 9.33:1, which is down only slightly from the previous week of 9.53:1. In short there is a surplus of managed money longs who will need to liquidate as prices move lower. Stand aside and wait for a rally before initiating bearish positions.
Gasoline: On July 7, August gasoline generated a short-term sell signal, but remains on an intermediate term buy signal.
August natural gas lost 14.2 cents on relatively heavy volume of 248,114 contracts. Volume was the highest since June 26 when natural gas lost 12.8 cents on volume of 278,490 contracts and total open interest increased by 1,237 contracts.On July 7, total open interest increased by a hefty 9,546 contracts, which relative to volume is approximately 50% above average meaning that aggressive new short sellers were entering the market and driving prices down to new lows for the move (4.200). The August contract gained 2,205 of open interest, which is unusual considering that August is approaching its expiration.
As this report is being compiled on July 8, August natural gas has made another new low at 4.129, which is the lowest print since January 21, 2014 (4.061). According to the latest COT report, managed money was long natural gas by ratio of 1.23:1, which was below the December 10, 2013 ratio of 1.24:1. Ideally, we want to see managed money become net short during the time that natural gas makes its seasonal low, which is usually in the month of July. This will set the stage for a possible strong advance into the fall. Stand aside.
The September euro advanced 16 pips on volume of 127,015 contracts. Total open interest increased by 1633 contracts, which relative to volume is approximately 45% less than average. As this report is being compiled, the September euro is trading 4 pips higher and has made a daily high of 1.3621, which is its highest print since 1.3668 made on July 3. We thought it was likely the euro would generate a short-term sell signal, and it came very close to doing so, however it is not occurred as of yet. The euro remains on a short-term buy signal, which was generated on July 1 and an intermediate term sell signal. Stand aside.
The September Swiss franc gained 12 pips on volume of 30,267 contracts. Total open interest increased by a strong 1,217 contracts, which relative to volume is approximately 55% above average. As this report is being compiled on July 8, the September Swiss franc is trading 4 pips higher on the day. Yesterday, we recommended the initiation of bullish positions in the September Swiss franc and to use the July 3 low of 1.1155 as an exit point for these positions. Additionally, we recommended the initiation of bullish positions in the Swiss franc-euro cross ( CHFEUR) and to exit the trade at .82 17. Continue to hold the positions.
August gold lost $4.30 on volume of 125,688 contracts. Total open interest increased by 3,136 contracts, which relative to volume is average. As this report is being compiled on July 8, August gold is trading 20 cents lower on the day and has made a daily low of 1314.30.We are becoming concerned about the price and open interest action in gold. For example since June 20, the day after the major rally through July 7, total open interest has increased by 25,000 contracts. However, the price of the August contract is essentially unchanged in this time frame.
On June 20 , August gold closed at 1316.60 and by July 7 closed at 1317.00. In short there has been a massive increase of open interest, but it is not moving prices higher. We suspect this is the result of trade selling, and therefore recommend that clients take defensive measures if holding long gold positions. This could take the form of writing out of the money calls or buying out of the money puts along with stop placement at the June 25 low of 1305.40. Additionally, clients may want to consider taking partial profits on positions. This is not to say that gold is entering a bear market, but rather a market that is in the process of forming a bottom.We have no recommended position in gold.
September silver lost 18.6 cents on volume of 42,304 contracts. Total open interest increased by 2069 contracts, which relative to volume is approximately 90% above average meaning that new shorts were aggressively entering the market and driving silver prices lower. As this report is being compiled on July 8, September silver is trading unchanged on the day. If gold takes a dive, silver will likely trend lower with it. However, the open interest stats for silver are vastly different from gold, and this is probably due to the expiration of the July contract which had a significant decrease in open interest as it approached 1st notice day.
On June 20, September silver closed at $20.994 and by July 7 close at 21.014, which is essentially unchanged. The difference from gold is that from June 20 through July 7, open interest declined by 4,728 contracts. Another positive factor for silver is that managed money is considerably less bullish on silver than gold. According to the latest COT report, managed money is long gold by ratio of 6.41:1 while they are long silver by 3.78:1, even though silver is outperforming gold through the 2nd quarter although not year to date. Like gold, we think clients should take defensive measures to protect profits. This can take the form of writing out of the money calls, or buying out of the money puts, taking partial profits. We strongly encourage clients to place stops at or below the June 25 low of 20.760.